Investment banks to be asked in Commons why sale of asset favoured foreign investors and if float price was set too low
The investment banks tasked with allocating shares in last month’s controversial Royal Mail float face a grilling by MPs over allegations they discriminated against UK pension funds and favoured foreign investors.
Goldman Sachs and UBS led an offer that has been widely criticised for short-changing taxpayers by selling a major government asset on the cheap, after Royal Mail shares immediately soared on the stock exchange and continue to trade at a premium of around 70%.
Those concerns have been exacerbated by the presence of sovereign wealth funds – including Kuwait, Singapore and Abu Dhabi – on the Royal Mail’s share register.
One senior City source, who has worked on major UK privatisations, said: “The Royal Mail was probably a bit cheap, but it is one thing to sell it at a cut-price to UK pension funds … There was a disproportionate amount of shares that went to sovereign wealth funds.”
Senior representatives from Goldmans and UBS will appear in parliament next Wednesday to answer questions from MPs on the business, innovation and skills select committee, alongside peers from JP Morgan, Citibank, Deutsche Bank and stockbroker Panmure Gordon.
The MPs’ concerns over the flotation are echoed by City figures. A top UK fund manager said: “A lot of people were very upset at their allocation, even on day zero before the shares started trading at a premium.
“It may be that the advisers did not take account of the political implications and do as good a job as they could have done.”
A source close to the committee confirmed: “This is something the committee is aware of. It may well come up in the session.”
In the months running up to the privatisation, it is understood that Royal Mail, the government and its advisers were working with a small group of financial institutions in order to get an early idea of how the shares should be priced.
That inner core of investors, which is thought to have largely excluded top UK pension fund managers, ended up with the most sizeable allocations.